[VERSION PUBLIEE] / [DOCUMENT DE TRAVAIL]

Abstract:

This research provides novel empirical evidence about the exchange rate reaction to international organization loans and geopolitical preferences using an unbalanced panel of 153 countries observed from February 1993 to December 2019. For elected temporary members of the UN Security Council, the International Monetary Fund (IMF) loans cause a sizeable appreciation in the exchange rate vis-à-vis the USD of around 2 percent at the 12-month horizon, after controlling for institutional quality. Asian Development Bank (ADB) loans cause an appreciation of around 0.25 percent at the 4-month horizon. These effects are stronger when the geopolitical distance with China is higher, indicating a higher credibility for these loans. 

Keywords:

Exchange Rates; Geopolitical Preferences; International Organizations; Institutional Quality; Local Projections

JEL Classification:

D78; F30; F42 

[VERSION PUBLIEE] / [DOCUMENT DE TRAVAIL]

Abstract:

We introduce the concept of Political Central Bank Coverage (PCBC), which refers to the influence of monetary policy-related media coverage on the popularity of political parties. Our study focuses on Germany and examines the period between January 2005 and December 2021. To explore PCBC, we gathered monthly popularity ratings for six German political parties. Through textual analysis we measured media coverage of monetary policy. Subsequently, we estimated popularity functions for the political parties, incorporating our textual measures and a dummy variable indicating the month prior to an election. Our findings highlight the existence of PCBCs in Germany in the month preceding federal elections and elections to the European Parliament. Importantly, these results remain robust across various methodological approaches, including the use of a seemingly unrelated regressions model, alternative preelectoral periods and different occurrence and sentiment measures. Furthermore, our study suggests that the presence of PCBC may be influenced by the partisanship of newspapers considered and the direct communication of the European Central Bank.

Keywords:

European Central Bank; Press; Textual Analysis; Tone Analysis; Elections; Political Cycles; Germany

JEL Classification:

D72; E58; P35 

[VERSION PUBLIEE] ; [DOCUMENT DE TRAVAIL] 

Abstract:

In this paper, we challenge the claim that a conservative central bank strengthens the likelihood of a conservative government. In contrast, if an election is based on the comparative advantages of the candidates, an inflation-averse central banker can deter the chances of a conservative candidate because once inflation is removed, its comparative advantage in the fight against inflation disappears. We develop a theory based on a policy-mix game with electoral competition, predicting that a tighter monetary policy reduces the chances of a conservative (i.e., inflation-adverse) party while enhancing the chances for a liberal party. To test these predictions, we examine monthly data of British political history between 1987 and 2015, and show that an increase in the interest rate in the 10 months prior to a national election decreases the popularity of a Tory government. Our analysis on a panel of 6 OECD countries reveals that a 1 percentage point pre-electoral increase in the main targeted interest rate rises the popularity of liberal parties by approximately 3.43 percentage points relatively to its trend.

Keywords:

Monetary policy; Elections; United Kingdom; Comparative Advantage

[VERSION PUBLIEE]

Abstract:

After decades of research on how political events may impact monetary policy, the discussions are still ongoing. This paper aims to test whether electorally induced cycles exist in monetary policy using an extensive database. An unique panel dataset of 103 countries over 32 periods (1985-2016) is constructed by combining election periods and political regimes. I find evidence that elections affect monetary policy in both developed and developing countries. The growth of the monetary mass (measured as the growth rate of M1) appears to be significantly higher in pre-electoral periods. Indeed, the growth of the monetary mass is on average between 1.4% and 2.25% higher during the twelve months prior to a national election. Furthermore, I investigate if some type of institutional frameworks might smooth these political monetary cycles. I find that parliamentary regimes, free and fair elections, left-wing incumbents, the seniority of central banks or the adherence to a monetary union that promotes regional integration help to reduce the amplitude of political monetary cycles.

Keywords:

Political Monetary Cycles; Central Bank; Elections; Political Economy

JEL Classification:

E52; E58; P35